Chancellor risks Britain's gold-plated AAA rating over debt failure

Britain's much-prized AAA credit rating will hang in the balance on Wednesday when George Osborne struggles in his Autumn Statement to convince the markets that his sums still add up.

Weaker than expected growth, in part because of turmoil in the eurozone, has cast a cloud over the Treasury’s deficit reduction plans.

In particular, the spotlight will be on the Chancellor’s self-imposed target of getting net debt falling as a percentage of gross domestic product by 2015-16, a goal many observers believe to be impossible without either more spending cuts, or tax rises, or both – all of which would imperil the fragile recovery.

Spotlight: All eyes will be on Chancellor George Osborne when he delivers his Autumn Statement on Wednesday

Osborne is expected to try to bolster
public finances by increasing taxes on wealthier households and high
earners. And in an effort to lift the economy, he is thought likely to
tilt existing public funds towards more immediate infrastructure
investment, especially roads. There will also be an extra £1billion of
help for small firms hoping to export to fast-growing economies.

But he will need all his presentational skills to avoid losing membership of the gold-plated AAA club.

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Already, two of the big agencies, Moody’s and Fitch, have put Britain on ‘negative outlook’.

A
Treasury source said: ‘While it was always going to be a hard road to
recovery and it may be taking longer than we hoped to put things right,
Britain is on the right track and turning back now would be a disaster,’
adding Britain’s credibility is paying off.

Elsewhere,
it is thought there will be some movement on a review of changes to
pension rules that have cut many retired people’s incomes by more than
half. The April 2011 reduction in the amount pensioners can draw down
from their pensions has proved hugely controversial.

Other expected measures include:

- Accelerated moves to regional pay bargaining in the public sector, an idea fiercely resisted by unions.

-
Extension of the principle behind the Enterprise Finance Guarantee
scheme – a fund to lend money to smaller businesses unable to get
ordinary commercial loans – so that more established businesses will
have access to longer-term lending.

- Moves towards simplification of the tax regime for smaller firms.

-
Possible action against a £700million-plus tax dodge used by some
employment agencies, under which part of workers’ pay is classed as
expenses allowing the agencies to claim some of the tax back on this.

The
need to give business a helping hand will be highlighted by other news
this week. Tomorrow will see the release of the first official figures
for the Government’s Funding for Lending scheme, which gives banks cheap
Bank of England loans on condition they pass them on to homebuyers or
businesses.

Banking
sources warn the figures may be disappointing as it has taken some banks
time to sign up to the scheme, launched in the summer.And
poor figures from Britain’s manufacturing heartlands are set to provide
a gloomy backdrop to 2012’s final meeting of the Monetary Policy
Committee this week.

Problems
in export markets have ensured that the annual rate of manufacturing
output has not grown since December last year. Another fall is expected
when the October figures are published this week.However, no change in policy is expected at the MPC’s meeting on Wednesday and Thursday.